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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934
For the transition period from                       to __________
 
Commission File Number: 0-25233
 
PROVIDENT NEW YORK BANCORP
(Exact Name of Registrant as Specified in its Charter)
 
Delaware  
80-0091851
(State or Other Jurisdiction of Incorporation or Organization)   (IRS Employer ID No.)
 
400 Rella Boulevard, Montebello, New York  
10901
(Address of Principal Executive Office)   (Zip Code)
                                                                                                          
(845) 369-8040
(Registrant’s Telephone Number including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes x  No o
 
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes o  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large Accelerated Filer o
Accelerated Filer x
Non-Accelerated Filer o
Smaller Reporting Company o
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes o  No x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
 
Classes of Common Stock
 
Shares Outstanding as of May 2, 2011
 
         
 
$0.01 per share
 
38,035,034
 
 


 
QUARTERLY PERIOD ENDED MARCH 31, 2011
       
PART I.  FINANCIAL INFORMATION
Item 1.
 
Financial Statements
 
       
   
3
   
4
   
5
   
6
   
8
   
9
       
 
30
       
 
40
       
 
42
       
PART II.  OTHER INFORMATION
 
42
 
42
       
 
42
       
 
42
       
 
42
       
 
42
       
 
43
   
44
 
 
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
(In thousands, except share data)
 
   
March 31,
   
September 30,
 
 
 
2011
   
2010
 
ASSETS                
Cash and due from banks
  $ 72,670     $ 90,872  
Securities (note 6) (including $608,279 and $719,172 pledged as collateral for borrowings and deposits at March 31, 2011 and September 30, 2010 respectively)
               
Available for Sale
    833,179       901,012  
Held to maturity, at amortized cost (fair value of $29,203 and $35,062 at March 31, 2011 and September 30, 2010, respectively)
    28,054       33,848  
Total securities
    861,233       934,860  
Loans held for sale
          5,890  
Loans (notes 3 and 4):
               
Gross loans
    1,684,827       1,701,541  
Allowance for loan losses
    (30,130 )     (30,843 )
Total loans, net
    1,654,697       1,670,698  
Federal Home Loan Bank (FHLB) stock, at cost
    18,179       19,572  
Accrued interest receivable
    11,345       11,069  
Premises and equipment, net
    42,830       43,598  
Goodwill
    160,861       160,861  
Core deposit and other intangible assets
    2,857       3,640  
Bank owned life insurance
    51,985       50,938  
Other assets
    42,634       29,027  
Total assets
  $ 2,919,291     $ 3,021,025  
LIABILITIES AND STOCKHOLDERS EQUITY
               
LIABILITIES
               
Deposits (note 7)
  $ 2,089,904     $ 2,142,702  
FHLB borrowings (including repurchase agreements of $211,159 and $222,500 at March 31, 2011 and September 30, 2010, respectively) (note 8)
    327,943       363,751  
Borrowings senior unsecured note (FDIC insured) (note 8)
    51,498       51,496  
Mortgage escrow funds
    14,286       8,198  
Other liabilities
    15,391       23,923  
Total liabilities
    2,499,022       2,590,070  
Commitments and contingent liabilities (note 13)
           
                 
STOCKHOLDERS’ EQUITY:
               
Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; none issued or outstanding)
             
Common stock (par value $0.01 per share; 75,000,000 shares authorized; 45,929,552 issued; 38,072,942 and 38,262,288 shares outstanding at March 31, 2011 and September 30, 2010, respectively)
    459       459  
Additional paid-in capital
    357,075       356,912  
Unallocated common stock held by employee stock ownership plan (ESOP)
    (6,387 )     (6,637 )
Treasury stock, at cost (7,856,610 and 7,667,264 shares at March 31, 2011 and September 30, 2010, respectively)
    (89,090 )     (87,336 )
Retained earnings
    168,300       162,433  
Accumulated other comprehensive income (loss), net of taxes
    (10,088 )     5,124  
Total stockholdersequity
    420,269       430,955  
Total liabilities and stockholders equity
  $ 2,919,291     $ 3,021,025  
 
See accompanying notes to unaudited consolidated financial statements
 
 
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
(Dollars in thousands, except share data)
 
   
For the Three Months
   
For the Six Months
 
   
Ended March 31,
   
Ended March 31,
 
   
2011
   
2010
   
2011
   
2010
 
Interest and dividend income:
                       
Loans
  $ 22,039     $ 22,655     $ 45,244     $ 46,055  
Taxable securities
    3,531       4,724       7,061       9,476  
Non-taxable securities
    1,901       1,901       3,826       3,796  
Other earning assets
    332       347       732       718  
Total interest and dividend income
    27,803       29,627       56,863       60,045  
Interest expense:
                               
Deposits
    1,585       2,201       3,227       4,991  
Borrowings
    3,707       4,492       7,941       9,234  
Total interest expense
    5,292       6,693       11,168       14,225  
Net interest income
    22,511       22,934       45,695       45,820  
Provision for loan losses (note 4)
    2,100       2,500       4,200       5,000  
Net interest income after provision for loan losses
    20,411       20,434       41,495       40,820  
Non-interest income:
                               
Deposit fees and service charges
    2,643       2,744       5,410       5,737  
Net gain on sale of securities
    748       1,884       4,950       4,272  
Title insurance fees
    274       237       637       548  
Bank owned life insurance
    553       496       1,047       1,050  
Net gain on sale of loans
    310       117       852       400  
Investment management fees
    789       776       1,532       1,555  
Fair value (loss) gain on interest rate cap
    (2 )     (616 )     232       (236 )
Other
    480       475       1,018       880  
Total non-interest income
    5,795       6,113       15,678       14,206  
Non-interest expense:
                               
Compensation and employee benefits (note 12)
    11,183       10,824       22,411       21,088  
Retirement benefit settlement charge
    278             278        
Stock-based compensation plans
    296       581       575       1,033  
Occupancy and office operations
    3,757       3,537       7,392       6,863  
Advertising and promotion
    843       794       1,796       1,536  
Professional fees
    1,043       914       2,105       1,748  
Data and check processing
    691       577       1,333       1,127  
Amortization of intangible assets
    371       472       783       965  
FDIC insurance and regulatory assessments
    919       931       1,687       1,715  
ATM/debit card expense
    366       536       759       1,090  
Other
    2,044       2,007       3,941       3,902  
Total non-interest expense
    21,791       21,173       43,060       41,067  
Income before income tax expense
    4,415       5,374       14,113       13,959  
Income tax expense
    842       1,207       3,820       3,626  
Net Income
  $ 3,573     $ 4,167     $ 10,293     $ 10,333  
Weighted average common shares:
                               
Basic
    37,496,395       38,188,191       37,524,627       38,384,180  
Diluted
    37,497,467       38,209,766       37,524,950       38,430,506  
Earnings per common share (note 10)
                               
Basic
  $ 0.10     $ 0.11     $ 0.27     $ 0.27  
Diluted
  $ 0.10     $ 0.11     $ 0.27     $ 0.27  

See accompanying notes to unaudited consolidated financial statements
 
 
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
(In thousands, except share data)
 
                                       
Accumulated
       
   
Number
         
Additional
   
Unallocated
               
Other
   
Total
 
   
of
   
Common
   
Paid-In
   
ESOP
   
Treasury
   
Retained
   
Comprehensive
   
Stockholders
 
   
Shares
   
Stock
   
Capital
   
Shares
   
Stock
   
Earnings
   
Income (loss)
   
Equity
 
Balance at September 30, 2010
    38,262,288     $ 459     $ 356,912     $ (6,637 )   $ (87,336 )   $ 162,433     $ 5,124     $ 430,955  
Net income
                                  10,293             10,293  
Other comprehensive loss
                                        (15,212 )     (15,212 )
Total comprehensive loss
                                                            (4,919 )
Deferred compensation transactions
                19                               19  
Stock option transactions, net
                278                               278  
ESOP shares allocated or committed to be released for allocation (24,966 shares)
                (10 )     250                         240  
RRP Awards
    19,000             (187 )           187                    
Vesting of RRP Awards
                63                               63  
Purchase of treasury shares
    (208,346 )                       (1,941 )                 (1,941 )
Cash dividends paid ($0.12 per common share)
                                  (4,426 )           (4,426 )
Balance at March 31, 2011
    38,072,942     $ 459     $ 357,075     $ (6,387 )   $ (89,090 )   $ 168,300     $ (10,088 )   $ 420,269  
 
See accompanying notes to unaudited consolidated financial statements
 
 
5

 
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
(In thousands, except share data)
 
   
For the Six Months
 
   
Ended March 31,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
Net income
  $ 10,293     $ 10,333  
Adjustments to reconcile net income to net cash provided by operating activities
               
Provision for loan losses
    4,200       5,000  
Write down of other real estate owned
    100       7  
Depreciation and amortization of premises and equipment
    2,860       2,532  
Amortization of intangibles
    783       965  
Net gain on sales of loans held for sale
    (852 )     (400 )
Net realized gain on sale of securities available for sale
    (4,950 )     (4,272 )
Fair value (income) loss on interest rate cap
    (232 )     236  
Loss on sales of fixed assets
          54  
Net amortization of premium on securities
    4,714       2,108  
Amortization of premiums on borrowings
    (32 )     (165 )
Amortization of prepaid penalties on borrowings
    338        
ESOP and RRP expense
    302       1,032  
ESOP forfeitures
    (3 )     (2 )
Retirement benefit settlement expense
    278        
Stock option compensation expense
    278       4  
Originations of loans held for sale
    (37,819 )     (23,934 )
Proceeds from sales of loans held for sale
    44,561       22,581  
Increase in cash surrender value of bank owned life insurance
    (1,047 )     (334 )
Deferred income tax expense
    (1,225 )     (7,261 )
Net changes in accrued interest receivable and payable
    (726 )     (1,241 )
Other adjustments (principally net changes in other assets and other liabilities)
    (8,692 )     (2,666 )
Net cash provided by operating activities
    13,129       4,577  
Cash flows from investing activities
               
Purchases of available for sale securities
    (357,238 )     (425,529 )
Purchases of held to maturity securities
    (8,005 )     (15,619 )
Proceeds from maturities, calls and other principal payments on securities:
               
Available for sale
    131,361       130,954  
Held to maturity
    10,844       16,547  
Proceeds from sales of securities available for sale and held to maturity
    270,351       231,019  
Loan originations
    (261,632 )     (197,708 )
Loan principal payments
    272,853       229,331  
Purchase of interest rate derivative
          (1,368 )
Purchase of FHLB stock
    (23,239 )     (17,281 )
Redemption of FHLB stock
    24,632       17,693  
Purchases of premises and equipment
    (2,092 )     (4,388 )
Proceeds from the sale of premises
          48  
Net cash (used) / provided by investing activities
    57,835       (36,301 )
 
(Continued)
 

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands, except share data)
 
   
For the Six Months
 
   
Ended March 31,
 
   
2011
   
2010
 
Cash flows from financing activities:
           
Net decrease in transaction, savings and money market deposits
  $ (23,967 )   $ (62,116 )
Net decrease in time deposits
    (28,831 )     (13,213 )
Net decrease in short-term borrowings
    (62,340 )     (7,100 )
Gross repayments of long-term borrowings
    (57,756 )     (2,056 )
Restructured debt
    89,135        
Payment of penalties on restructured borrowings
    (5,151 )      
Net increase in mortgage escrow funds
    6,088       5,000  
Treasury shares purchased
    (1,941 )     (7,694 )
Stock option transactions
    4       850  
Other stock-based compensation transactions
    19       42  
Cash dividends paid
    (4,426 )     (4,566 )
Net cash used in financing activities
    (89,166 )     (90,853 )
Net decrease in cash and cash equivalents
    (18,202 )     (122,577 )
Cash and cash equivalents at beginning of period
    90,872       160,408  
Cash and cash equivalents at end of period
  $ 72,670     $ 37,831  
                 
Supplemental information:
               
Interest payments
  $ 11,618     $ 15,899  
Income tax payments
    6,850       4,810  
Net change in net unrealized losses recorded on securities available for sale
    (26,550 )     (9,320 )
Change in deferred taxes on net unrealized losses on securities available for sale
    10,782       3,783  
Real estate acquired in settlement of loans
    580       143  
 
See accompanying notes to unaudited consolidated financial statements

 
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
(In thousands, except share data)
 
   
For the Three Months
   
For the Six Months
 
   
Ended March 31,
   
Ended March 31,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Net Income:
  $ 3,573     $ 4,167     $ 10,293     $ 10,333  
Other Comprehensive income (loss):
                               
Net unrealized holding gains (losses) on securities available for sale net of related tax expense (benefit) of $158, $1,878, $(8,772) and $(2,050)
    229       2,744       (12,828 )     (2,998 )
                                 
Less:
                               
Reclassification adjustment for net unrealized gains included in net income, net of related income tax expense of $304, $763, $2,010 and $1,733
    444       1,121       2,940       2,539  
      (215 )     1,623       (15,768 )     (5,537 )
                                 
Change in funded status of defined benefit plans, net of related income tax expense of $306, $147, $380 and $301
    449       230       556       454  
      234       1,853       (15,212 )     (5,083 )
                                 
Total Comprehensive income (loss)
  $ 3,807     $ 6,020     $ (4,919 )   $ 5,250  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
(In thousands, except share data)
 
1.
Basis of Presentation
 
The consolidated financial statements include the accounts of Provident New York Bancorp (“Provident Bancorp” or “the Company”), Hardenburgh Abstract Title Company, Inc., which provides title searches and insurance for residential and commercial real estate, Hudson Valley Investment Advisors, LLC (“HVIA”), a registered investment advisor, Provident Risk Management, (a captive insurance company), Provident Bank (“the Bank”), and the Bank’s wholly owned subsidiaries. These subsidiaries are (i) Provident Municipal Bank (“PMB”) which is a limited-purpose, New York State-chartered commercial bank formed to accept deposits from municipalities in the Company’s market area, (ii) Provident REIT, Inc. and WSB Funding, Inc. which are real estate investment trusts that hold a portion of the Company’s real estate loans, (iii) Provest Services Corp. I, which has invested in a low-income housing partnership,  (iv) Provest Services Corp. II, which has engaged a third-party provider to sell mutual funds and annuities to the Bank’s customers, and (v) Companies which hold foreclosed properties acquired by the Bank. Intercompany transactions and balances are eliminated in consolidation.
 
The Company’s off-balance sheet activities are limited to loan origination commitments, loan commitments pending sale, lines of credit extended to customers and for letters of credit, on behalf of customers, which all are in the ordinary course of its lending activities. In addition, the Company purchased interest rate caps with a notional value of $50.0 million during the first quarter of fiscal 2010.  The Company does not engage in off-balance sheet financing transactions or other activities involving the use of special-purpose or variable interest entities.
 
The consolidated financial statements have been prepared by management without audit, but, in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s financial position and results of operations as of the dates and for the periods presented.  Although certain information and footnote disclosures have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the Company believes that the disclosures are adequate to make the information presented clear.  The results of operations for the six months ended March 31, 2011 are not necessarily indicative of results to be expected for other interim periods or the entire fiscal year ending September 30, 2011.  The unaudited consolidated financial statements presented herein should be read in conjunction with the annual audited financial statements included in the Company’s Form 10-K for the fiscal year ended September 30, 2010.
 
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.  In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expense.  Actual results could differ significantly from these estimates.  A material estimate that is particularly susceptible to near-term change is the allowance for loan loss (see note 4), which reflects the application of a critical accounting policy.
 
Certain loans amounts from prior periods have been reclassified to conform to the current fiscal year presentation.
 
2.
Recent  Accounting Standards, Not Yet Adopted
 
Accounting Standards Update (ASU)2011-02, Receivables (Topic 310)-A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring has been issued.  The ASU clarifies which loan modifications constitute troubled debt restructurings and assists creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings.  This standard is effective for the Company July 1, 2011 and is not expected to have a material effect on the Company’s consolidated financial statements.
 
3.
Loans
 
Major classifications of loans, excluding loans held for sale, are summarized below:
 
   
March 31, 2011
   
September 30, 2010
 
Real estate - residential mortgage
  $ 411,014     $ 434,900  
Real estate - commercial mortgage
    635,639       579,232  
Acquisition, development & construction loans
    205,293       231,258  
Commercial business loans
    205,490       217,927  
Consumer loans, including home equity loans
    227,391       238,224  
Total
  $ 1,684,827     $ 1,701,541  
 
 
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share data)
 
4.
Allowance for Loan Losses and Non-Performing Assets
 
The allowance for loan losses is established through provisions for losses charged to earnings.  Loan losses are charged against the allowance when management believes that the collection of principal is unlikely.  Recoveries of loans previously charged-off are credited to the allowance when realized.  The allowance for loan losses is the amount that management has determined to be necessary to absorb probable incurred loan losses inherent in the existing portfolio.  Management’s evaluations, which are subject to periodic review by the Company’s regulators, are made using a consistently applied methodology that takes into consideration such factors as the Company’s past loan loss experience, changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and collateral values, and current economic conditions.  Modifications to the methodology used in the allowance for loan losses evaluation may be necessary in the future based on economic and real estate market conditions, new information obtained regarding known problem loans, regulatory guidelines and examinations, the identification of additional problem loans, and other factors.  Activity in the allowance for loan losses and the recorded investments in loans by portfolio segment based on impairment method for the periods indicated are summarized below:
 
   
Three Months Ended March 31, 2011
 
   
1- 4 Family
Residential
   
Commercial
Real Estate
   
Commercial
Business
   
Acquisition
Development
& Construction
   
Consumer
   
Total
 
Allowance for loan losses:
                                   
Beginning Balance
  $ 2,814     $ 6,284     $ 9,216     $ 8,981     $ 3,741     $ 31,036  
Charge-offs
    (287 )     (659 )     (1,921 )     (125 )     (159 )     (3,151 )
Recoveries
    1             98             46       145  
Net Charge-offs
    (286 )     (659 )     (1,823 )     (125 )     (113 )     (3,006 )
Provision for loan losses
    1,011       651       745       (128 )     (179 )     2,100  
Ending Balance
  $ 3,539     $ 6,276     $ 8,138     $ 8,728     $ 3,449     $ 30,130  
Net charge-offs to average loans outstanding (annualized)
                                            0.71 %
 
   
Six Months Ended March 31, 2011
 
   
1- 4 Family
Residential
   
Commercial
Real Estate
   
Commercial
Business
   
Acquisition
Development
& Construction
   
Consumer
   
Total
 
Allowance for loan losses:
                                   
Beginning Balance
  $ 2,587     $ 5,913     $ 8,677     $ 10,231     $ 3,435     $ 30,843  
Charge-offs
    (440 )     (876 )     (3,280 )     (125 )     (665 )     (5,386 )
Recoveries
    1             389       7       76       473  
Net Charge-offs
    (439 )     (876 )     (2,891 )     (118 )     (589 )     (4,913 )
Provision for loan losses
    1,391       1,239       2,352       (1,385 )     603       4,200  
Ending Balance
    3,539       6,276       8,138       8,728       3,449       30,130  
Net charge-offs to average loans outstanding (annualized)
                                            0.58 %
Ending allowance balance attributable to loans:
                                               
Individually evaluated for impairment
  $ 1,552     $ 407     $ 461     $ 723     $ 553     $ 3,696  
Collectively evaluated for impairment
    1,987       5,869       7,677       8,005       2,896       26,434  
Total ending allowance
  $ 3,539     $ 6,276     $ 8,138     $ 8,728     $ 3,449     $ 30,130  
                                                 
Loans:
                                               
                                                 
Loans as of March 31, 2011:                                                 
Individually evaluated for impairment
  $ 10,062     $ 11,328     $ 1,167     $ 31,100     $ 1,876     $ 55,533  
Collectively evaluated for impairment
    400,952       624,311       204,323       174,193       225,515       1,629,294  
Total ending loans balance
  $ 411,014     $ 635,639     $ 205,490     $ 205,293     $ 227,391     $ 1,684,827  
 
 
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share data)
 
   
Three Months Ended March 31, 2010
 
                     
Acquisition
             
   
1- 4 Family
   
Commercial
   
Commercial
   
Development
             
   
Residential
   
Real Estate
   
Business
   
& Construction
   
Consumer
   
Total
 
Allowance for loan losses:
                                   
Beginning Balance
  $ 3,016     $ 5,999     $ 8,083     $ 10,276     $ 2,593     $ 29,967  
Charge-offs
    (198 )     (30 )     (1,375 )     (250 )     (594 )     (2,447 )
Recoveries
          1       144       251       28       424  
Net Charge-offs
    (198 )     (29 )     (1,231 )     1       (566 )     (2,023 )
Provision for loan losses
    144       1,067       993       (270 )     566       2,500  
Ending Balance
  $ 2,962     $ 7,037     $ 7,845     $ 10,007     $ 2,593     $ 30,444  
Net charge-offs to average loans outstanding (annualized)
                                            0.48 %
 
   
Six Months Ended March 31, 2010
 
                     
Acquisition
             
   
1- 4 Family
   
Commercial
   
Commercial
   
Development
             
   
Residential
   
Real Estate
   
Business
   
& Construction
   
Consumer
   
Total
 
Allowance for loan losses:
                                   
Beginning Balance
  $ 3,131     $ 7,757     $ 8,758     $ 7,742     $ 2,662     $ 30,050  
Charge-offs
    (506 )     (227 )     (3,240 )     (455 )     (796 )     (5,224 )
Recoveries
          15       287       261       55       618  
Net Charge-offs
    (506 )     (212 )     (2,953 )     (194 )     (741 )     (4,606 )
Provision for loan losses
    337       (508 )     2,040       2,459       672       5,000  
Ending Balance
    2,962       7,037       7,845       10,007       2,593       30,444  
Net charge-offs to average loans outstanding (annualized)
                                            0.55 %
Ending allowance balance attributable to loans:
                                               
Individually evaluated for impairment
  $ 536     $ 986     $ 356     $ 979     $ 219     $ 3,076  
Collectively evaluated for impairment
    2,426       6,051       7,489       9,028       2,374       27,368  
Total ending allowance
  $ 2,962     $ 7,037     $ 7,845     $ 10,007     $ 2,593     $ 30,444  
 
 
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share data)
 
A loan is impaired when it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement.  Impaired loans substantially consist of nonperforming loans and accruing and performing troubled debt restructured loans.  The recorded investment of an impaired loan includes the unpaid principal balance, negative escrow and any tax in arrears.
 
The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2011:
 
               
Allowance
    YTD          
Cash-basis
 
   
Unpaid
         
for Loan
   
Average
   
Interest
   
Interest
 
   
Principal
   
Recorded
   
Losses
   
Impaired
   
Income
   
Income
 
   
Balance
   
Investment
   
Allocated
   
Loans
   
Recognized
   
Recognized
 
With no related allowance recorded:
                                   
Real estate - residential mortgage
  $ 2,790     $ 2,984     $     $ 2,978     $ 53     $ 4  
Real estate - commercial mortgage
    6,192       6,429             6,347       102       16  
Acquisition, development and construction
    27,839       28,239             35,107       403       501  
Commercial business loans
    434       434             578       1       1  
Consumer loans
    802       808             798       17        
Subtotal
    38,057       38,894             45,808       576       522  
                                                 
With an allowance recorded:
                                               
Real estate - residential mortgage
    6,963       7,078       1,552       7,229       27       17  
Real estate - commercial mortgage
    4,770       4,899       407       5,005       27       2  
Acquisition, development and construction
    2,822       2,861       723       2,988              
Commercial business loans
    733       733       461       720              
Consumer loans
    1,068       1,068       553       1,144              
Subtotal
    16,356       16,639       3,696       17,086       54       19  
                                                 
Total
  $ 54,413     $ 55,533     $ 3,696     $ 62,894     $ 630     $ 541  
 
The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2010:
 
               
Allowance
 
   
Unpaid
         
for Loan
 
   
Principal
   
Recorded
   
Losses
 
   
Balance
   
Investment
   
Allocated
 
With no related allowance recorded:
                 
Real estate - residential mortgage
  $ 2,896     $ 2,930     $  
Real estate - commercial mortgage
    1,658       1,793        
Acquisition, development and construction
    4,732       4,760        
Commercial business loans
    458       458        
Consumer loans
    378       378        
Subtotal
    10,122       10,319        
                         
With an allowance recorded:
                       
Real estate - residential mortgage
    5,682       5,879       800  
Real estate - commercial mortgage
    6,974       7,203       399  
Acquisition, development and construction
    15,613       15,652       766  
Commercial business loans
    1,365       1,365       511  
Consumer loans
    1,663       1,664       570  
Subtotal
    31,297       31,763       3,046  
                         
Total
  $ 41,419     $ 42,082     $ 3,046  
 
 
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share data)
 
Average impaired loans for the six months ended September 30, 2010 were $27,032.  Listed below are the interest income recognized during impairment and cash received for interest during impairment for the six months ending March 31, 2011 and March 31, 2010, respectively.
 
   
March 31,
   
March 31,
 
   
2011
   
2010
 
Interest income recognized during impairment
  $ 630     $ 988  
Cash-basis interest income recognized
    541       579  
 
The following table sets forth the amounts and categories of the Company’s non-performing assets and troubled debt restructurings at the dates indicated.
 
   
March 31, 2011
   
September 30, 2010
 
                         
   
90 days past due
Still accruing
   
Non-
Accrual
   
90 days past due
Still accruing
   
Non-
Accrual
 
Non-performing loans:
                       
One- to four- family
  $ 2,536     $ 7,106     $ 1,953     $ 6,080  
Commercial real estate
    3,984       7,906       2,971       6,886  
Commercial business
    180       655             1,376  
Acquisition, development and construction loans
          12,940             5,730  
Consumer
    712       1,158       503       1,341  
Total non-performing loans
  $ 7,412     $ 29,765     $ 5,427     $ 21,413  
                                 
Real estate owned:
                               
Land
            2,620               2,029  
Commercial real estate
            2,425               1,507  
One- to four-family
            306               355  
Total real estate owned
            5,351               3,891  
                                 
Total non-performing assets
          $ 42,528             $ 30,731  
                                 
Troubled Debt Restructurings still accruing and not included above
          $ 21,954             $ 16,047  
                                 
Ratios:
                               
Non-performing loans to total loans
            2.21 %             1.58 %
Non-performing assets to total assets
            1.46 %             1.02 %
Allowance for loan losses to total non-performing loans
            81 %             115 %
Allowance for loan losses to average loans
            1.77 %             1.82 %
 
 
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share data)
 
Troubled Debt Restructurings:
Troubled debt restructurings are renegotiated loans for which concessions have been granted to the borrower that the Company would not have otherwise granted and the borrower is experiencing financial difficulty.  Restructured loans are recorded in accrual status when the loans have demonstrated performance, generally evidenced by six months of payment performance in accordance with the restructured terms, or by the presence of other significant items. Total troubled debt restructurings were $25,934 and $21,504 at March 31, 2011 and September 30, 2010, respectively.  There were $3,980 and $5,457 in troubled debt restructurings included in non- performing loans at March 31, 2011 and September 30, 2010, respectively.  Troubled debt restructurings still accruing and considered to be performing were $21,954 and $16,047 at March 31, 2011 and September 30, 2010, respectively.  The Company has allocated $312 and $673 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2011 and September 30, 2010 respectively.
 
The Company has committed to lend additional amounts totaling up to $4,063 and $3,957 as of March 31, 2011 and September 30, 2010 to customers with outstanding loans that are classified as troubled debt restructurings. The commitments to lend on the restructured debt is contingent on clear title and a third party inspection to verify completion of work and is associated with loans that are considered to be performing.
 
Credit Quality Indicators:
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors.  The Company analyzes loans individually by classifying the loans as to credit risk.  This analysis includes all loans.  This analysis is performed on a monthly basis on all criticized classified loans.  The Company uses the following definitions of risk ratings:
 
Special Mention.  Loans classified as special mention have a potential weakness that deserves management’s close attention.  If left uncorrected these potential weaknesses may result in the deterioration of the repayment prospects for the loan or the institution’s credit position at some current future date.
 
Substandard.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of debt.  They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
 
Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
 
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  As of March 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of gross loans is as follows:
 
   
Special
             
   
Mention
   
Substandard
   
Doubtful
 
Real estate - residential mortgage
  $ 3,791     $ 10,063     $  
Real estate - commercial mortgage
    10,914       33,439        
Acquisition, development and construction
    6,838       63,880        
Commercial business loans
    4,892       3,912       576  
Consumer loans
    615       2,057        
                         
Total
  $ 27,050     $ 113,351     $ 576  
 
 
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share data)

The following table is made up of gross loans categorized as pass as of March 31, 2011:
 
   
Current
   
30 - 59 days
   
60 - 89 days
 
   
Loans
   
Delinquent
   
Delinquent
 
Real estate - residential mortgage
  $ 396,853     $ 230     $ 77  
Real estate - commercial mortgage
    591,286              
Acquisition, development and construction
    134,575              
Commercial business loans
    195,711       399        
Consumer loans
    223,331       1,018       370  
                         
Total
  $ 1,541,756     $ 1,647     $ 447  
 
5.
Fair value measurements
 
Effective October 1, 2008, the Company adopted provisions of FASB Codification Topic 820: Fair Value Measurements and Disclosure.  This topic establishes a hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair values hierarchy is as follows:
 
LEVEL 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.
 
LEVEL 2 – Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.
 
LEVEL 3 – Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the Company’s own estimates about the assumptions that the market participants would use to value the asset or liability.
 
When available, the Company attempts to use quoted market prices in active markets to determine fair value and classifies such items as Level 1 or Level 2. If quoted market prices in active markets are not available, fair value is often determined using model-based techniques incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using model-based techniques are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation.
 
The following is a description of the valuation methodologies used for the Company’s assets and liabilities that are measured on a recurring basis at estimated fair value.
 
Investment securities available for sale
The majority of the Company’s available for sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2.   Certain investments are actively traded and therefore have been classified as Level 1 valuations (U.S. Treasuries and certain government sponsored agencies).
 
The Company utilizes an outside vendor to obtain valuations for its traded securities as well as information received from a third party investment advisor.  The majority of the Company’s available for sale investment securities (mortgage backed securities issued by US government corporations and government sponsored entities) have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable (Level 2).  The Company utilizes prices from a leading provider of market data information and compares them to dealer indicative bids from the Company’s external investment advisor.  For securities where there is limited trading activity (private label CMO’s) and less observable valuation inputs, the Company has classified such valuations as Level 3.
 
 
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share data)
 
The Company reviewed the volume and level of activity for its available for sale securities to identify transactions which may not be orderly or reflective of significant activity and volume.  Although estimated prices were generally obtained for such securities, there has been a decline in the volume and level of activity in the market for its private label mortgage backed securities.  The market assumptions regarding credit adjusted cash flows and liquidity influences on discount rates were difficult to observe at the individual bond level.  Because of the inactivity in the markets and the lack of observable valuation inputs the Company has classified the valuation of privately issued residential mortgage backed securities as Level 3 as of April 1, 2009 with a fair value of $9,534.  As of March 31, 2011, these securities have an amortized cost of $5,850 and a fair value of $5,685.  In determining the fair value of these securities the Company utilized unobservable inputs which reflect assumptions regarding the inputs that market participants would use in pricing these securities in an orderly market.  Present value estimated cash flow models were used discounted at a rate that was reflective of similarly structured securities in an orderly market. The resultant prices were averaged with prices obtained from two independent third parties to arrive at the fair value as of March 31, 2011. These securities have a weighted average coupon rate of 2.96%, a weighted average life of 5.06 years, a weighted average 1 month prepayment history of 10.07 years and a weighted average twelve month default rate of 3.21 CDR.  One of the four securities is below investment grade and has an amortized cost of $2,135 and a fair value of $1,947 at March 31, 2011.  The remaining three securities are rated at or above Aa3.
 
Derivatives
The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).
 
Commitments to sell real estate loans
The Company enters into various commitments to sell real estate loans into the secondary market. Such commitments are considered to be derivative financial instruments and, therefore are carried at estimated fair value on the consolidated balance sheets.  The estimated fair values of these commitments were generally calculated by reference to quoted prices in secondary markets for commitments to sell to certain government sponsored agencies.  The fair values of these commitments generally result in a Level 2 classification.  The fair values of these commitments are not considered material.
 
A summary of assets and liabilities at March 31, 2011 measured at estimated fair value on a recurring basis were as follows:
 
   
Fair Value
                   
   
Measurements
                   
   
at
                   
   
March 31,
                   
   
2011
   
Level 1
   
Level 2
   
Level 3
 
Investment securities available for sale:
                       
U.S. Treasury
  $ 55,027     $ 55,027     $     $  
Federal agencies
    369,378             369,378        
Obligations of states and political subdivisions
    184,712